SECRET
of existing programmes
(about 11% of
about £60 million by new
taxes and the rest by borrowing. This is by far the largest increase that Hong Kong has ever had to meet in a single year.
It is this situation of recession and budgetary stringency which gives him problems in meeting our requirement for an increased defence contribution. The present citation is that the Ministry of
Position
Defence have calculated the forces that are needed to maintain security in Hong Kong, and have estimated that these will cost about £40 million a year at 1974 prices. We have said that HMG should not pay
(say more then about a quarter of this, £10 million). The Governor agrees that the present Hong Kong
contribution of £10 million is much too low, and
he believes he could get it doubled to about £20 million. But he does not see how he could achieve a threefold
increase in one year, particularly when this coincides with Hong Kong's general financial crisis. There is thus an unbridged gap of about £10 million. between the three variables of the cost of the forces, what we can pay, and what Hong Kong can contribute, and what we
q.
can pay.
RODGERS
During his visit, Sir Murray has been discussing the first of these variables with Bill Rogers and Ministry of Defence officials. But their view is that, unless HMG is to shed some of its constitutional responsibility for the colony, the proposed structure and nature of the garrison will have to remain essentially as now planned. However, the Ministry of Defence have agreed to send a team to Hong Kong in January to go through the proposed costings and any possible alternatives. We have also suggested, and the Treasury have tentatively agreed, that the team should be accompanied by Treasury officials who could examine the second potential variable of the Hong Kong budgetary situation, and also the possibility of some movement on the third, the cost to HMG. For example, on the last point,
SECRIT
/Treasury
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